Is Britain Stepping on the EU’s Toes?

A proposed euro zone banking union designed to create a system for strengthening the euro is facing opposition from Britain, European Union officials have told Reuters. The European Commission wants to make the European Central Bank responsible for looking over lenders, a step in the process of creating economic integration in the euro area. Under the new proposal, the banking union will allow the ECB to monitor euro zone banks, create a single fund to settle the debts of failed banks, and develop a scheme to protect savers’ deposits.

However, Britain is worried the plan will give too much power to the body and wants to propose a system that lets countries that are not part of the banking union to block possible pan-EU regulations. Britain does not have any plans to join the banking union and is instead making the Bank of England the UK regulator next year.

“The concern is that the Bank of England can find itself outvoted by the ECB on aspects of rule making,” one EU official said. “They are worried that the euro area will be able to push through a whole lot of decisions of its own volition. They are looking for something with checks and balances.”

While Britain is not wholly opposed to the banking union because it is designed to unite the 17 euro countries behind problem banks, it is worried that it will put London’s financial center, which uses the sterling, at a disadvantage. “It seems unlikely that the ECB would ride roughshod over the wishes of the Bank of England, but that is what the British Treasury is worried about,” the EU official told Reuters. “They want safeguards to make sure that doesn’t happen.”

Britain is likely to propose changes to the system of voting in the banking union while creating EU law and to create to a double vote — one for those in the banking union and another for non-euro countries outside. However, this idea is not likely to be acceptable to other members, potentially creating a significant obstacle in creating the union and, in turn, stalling one of the euro zone’s key responses to the economic crisis.

Sven Giegold, a German lawmaker who will work on designing the banking union, is not keen on Britain’s proposed changes. “That would be a de facto veto for Britain, which would reward countries who do not want to contribute to European integration,” Giegold said. Other countries including Sweden and Poland also have reservations about the proposal.

Officials from the EU’s 27 member countries met in Brussels last week to discuss the proposed structure and they are set to meet on Thursday and Friday again to discuss the issue.